In California crisis, Bush shows views on role of government

Hours after George W. Bush was sworn in as President, his young administration was jolted with its first major test.

California's controversial electricity deregulation plan had backfired, its failure unleashing rolling blackouts in California and electricity rate shocks in surrounding states. The crisis threatened to halt California's red-hot economy--the sixth largest in the world--and, perhaps, even short-circuit the nation's already slowing growth.

Taking swift action, the new President on his first day in the Oval Office convened an emergency meeting of economic and energy advisers. At issue: What, if anything, should the federal government do about the growing crisis?

After listening carefully to his aides, Bush made his decision, and at the same time set a tone likely to affect other federal regulatory challenges: The federal government, for the most part, would stay out of the issue. Instead, California legislators and regulators should find a solution, he reasoned.

"I have repeatedly said that the crisis has occurred because of faulty law in California," Bush told reporters even before the meeting. "Californians need to address the law."

Still, Bush knew he needed to offer California some relief in order to give the state time to find a solution and to protect himself politically. So he ignored his free market principles and announced a temporary, two-week extension of a Clinton administration order that forces energy suppliers to pump power into California.

The decision forced California officials to solve the problem basically on their own--and gave the state a clear deadline to act.

By the end of last week, just days after Bush's decision, California Gov. Gray Davis--a potential contender for the 2004 Democratic presidential nomination--and the state legislature neared a resolution, and the crisis began to ease.

Bush's verdict, and how he arrived at it, offers an important glimpse into how Bush will play the role of the nation's "regulator-in-chief" over the next four years--and hints at how the administration will approach dozens of key decisions affecting regulated industry.

In short, it shows a President who is reluctant to intervene in the free market, a former governor who prefers to leave such matters to the states and a politician who makes swift decisions.

"He is going to be cautious about throwing the government into the free market," said a Republican aide.

The administration's regulatory philosophy was summed up by Treasury Secretary O'Neill during his confirmation hearing: "...The President and the Congress have to be really careful when they hang out their shingles because, when they do, they get all the business," O'Neill said.

That is good news for industries with critical regulatory issues pending before the Bush administration.

In the next few years, several crucial regulatory decisions face the White House:

• The regional Bell operating companies will ask the Bush administration to eliminate a regulation that keeps them in the local phone business.
• Large electricity holding companies will ask for the right to merge.
• Television broadcasters will aim to lift a restriction on the number of stations they can purchase.

But experts caution that nobody should be fooled. As his decision to extend the mandate on California's power suppliers indicates, Bush sometimes will be willing to betray his deregulatory instincts.

"He will want to let the market work its will, but he does not want the people to be penalized," said Rep. Joe Barton, R-Texas, chairman of the House Energy and Commerce Energy and Power Subcommittee and informal Bush adviser.

Indeed, Bush is not afraid to harness the powers of his office to effect change in the marketplace, particularly when consumer interests are at stake.

When he was governor of Texas, for example, Bush allowed one of the "Baby Bells," SBC, to lower access charges--the fees it charges long distance carriers for using its lines--only after the company promised to pass on the savings to consumers.

That philosophy is reflected in Bush's appointments to key regulatory agencies.

On the same day Bush announced his decision on California, Bush tapped Curt Hebert Jr. to head Federal Energy Regulatory Commission and Michael Powell to chair the FCC.

Hebert calls himself an "unabashed champion of competition" and Powell champions loosening government regulations on broadcasters, phone companies and cable interests.

Bush also is considering Pat Wood, the chairman of Texas' Public Utility Commission for the final Republican slot at the FCC.

All three Republicans favor deregulation in general, but they each have indicated they share Bush's belief that the government often has a role to play in the marketplace.

"You have to fix the problems of a century of regulation. So you can't just deregulate. You need competition first, and then deregulation," Wood told the New York Times in October, summing up Bush's philosophy.

Indeed, lobbyists who are close to Bush do not expect an immediate sea change.

"I don't expect a revolution," said former Rep. Tom Taulke, R- Iowa, an adviser to Bush and a lobbyist for Verizon Communications. "Instead, overtime, there will be some gradual change in approach."